The Numbers Aren't Bad

By Robert S. Reichard, Economics Editor

L atest statistical evidence continues to support
Textile World ’s contention that the textile industry is doing tolerably well. A case in point: profits,
where new Census Department data — carrying through midyear — show after-tax mill earnings running
close to 12 percent above comparable 2005 levels. Margin trends are equally upbeat, with profits
per dollar of sales over the same period put at about 3.4 percent — significantly above the
3-percent reading noted during the first six months of 2005. That’s also the highest level for this
key indicator of textile health in more than a decade. To be sure, earnings in the downstream
apparel sector are down a bit. But here, too, dollar and margin levels remain solidly in the black.

More importantly, all this basically encouraging profit news is likely to continue through
the entire year. At least that’s how analysts at economic forecasting firm Global Insight see
things. Their latest forecast, for example, calls for a solid 15-percent margin gain this year for
mills turning out finished products — rugs, home furnishings, etc. And even in the more competitive
basic mill sector — yarns and fabrics, current forecasts suggest a much smaller margin decline than
last year, with an even better picture, a basically flat pattern, anticipated here for upcoming
2007.

Demand Is Holding Up, Too Nor are activity figures all that discouraging. Mill production, for example, has remained
pretty much unchanged since last December. In any event, that’s a heck of a lot better than some of
the steep declines reported over the past few years. Behind this somewhat brighter picture: a still
basically strong economy — more about this below — plus smaller than previously expected textile
and apparel import gains.

This somewhat improved mill production picture is also confirmed by better than anticipated
manufacturers’ dollar shipments, where — as reported in earlier months — an actual uptick in more
highly fabricated textile mill products has been helping to offset some of the continuing erosion
in the basic yarn and fabric sectors of the industry. Still other positive signs: manufacturers’
apparel shipments, which also are up of late, plus better inventory management. On the latter
score, stock/sales ratios remain quite low, suggesting that new bookings — rather than being billed
by inventory drawdowns — are now quickly being translated into new production and shipments.

Strong Economy Will Help Some further thoughts on the impact of continuing economic growth: To be sure, the housing
market has been weakening of late. But there are now plenty of areas that are likely to pick up the
slack. For one, considerably lower gasoline prices should leave a bit more money available for
clothing or other textile-related products. Household compensation — which at latest report was
rising at double the rate of inflation — should also help loosen up consumer purse strings, as well
as today’s somewhat smaller share of income going to pay down consumer debt.

Still another economic plus: the double-digit growth in US exports over the past year.
Finally, there are signs that capital spending on new plants and equipment — something that
accounts for more than twice as much gross domestic product as housing — is beginning to pick up.
This is a gain that also has positive ripples, helping to generate a secondary wave of jobs and
income for consumers. Given all the above, the current year-to-date modest boosts in apparel and
home-furnishing sales are likely to persist — not only through the remainder of the year, but also
into early 2007.

Chinese Concerns Persist But not everything is coming up roses. That’s certainly true when it comes to resolving the
still-growing trade imbalance with China. To be sure, the United States’ current textile and
apparel imports from that nation are under earlier double-digit levels. Nevertheless, the
4.5-percent jump recorded so far this year can’t be ignored. Nor can the recent declines in the
United States’ Western Hemisphere imports be regarded as any sort of positive offset. The reason:
Double-digit slippages from Canada, Mexico and the Caribbean mean that these countries will be
buying less US-made yarn and fabrics for their operations.

There also are more questions about the Chinese yuan. Clearly, the near 4-percent upward
revaluation in that country’s currency over the past year or so hasn’t really helped stem imports.
Indeed, almost everybody now agrees that a much larger yuan adjustment is needed. But this seems
highly unlikely, given Washington’s approach to view such revaluation as part of a much broader
agenda — one that also calls for Beijing to reduce subsidies granted to its domestic industries and
allow for a more freely flowing capital market.
September/October 2006